This is clearly fraud from an ethical standpoint. Whether it's fraud from a legal standpoint is less clear. I don't think it would be hard to prove it as fraud, as the lowest psychotherapy code requires 16 minutes to be devoted to psychotherapy for the add on. If they're claiming a 16 minute psychotherapy session, then they're saying they spent 0 minutes performing E&M services, because the time must be separated, and there are general guidelines for how long various levels of service should take. A 99213+lowest psychotherapy code would probably need to average at least a 25 minute session to stand up to scrutiny, and even that would be pushing it. If you have lots of no shows and could make the time work, it might be arguable. But if you're seeing 3-4 E&M+psychotherapy patients an hour consistently, there's now way that would hold up in an audit.
What the OPs colleagues seem to be missing is that a) psychotherapy has definitions under these guidelines, b) supportive psychotherapy is an actual technique, and c) the E&M time and the psychotherapy time MUST be separate.
For example, from talking with folks at the APA, if you spent 20 minutes doing motivational interviewing with someone, that does NOT meet the definition for psychotherapy, but is rather considered counseling and coordination of care. Psychoeducation is counseling not psychotherapy, et al.